Directorate-General for Research WORKING PAPER Tax co-ordination in the European Union Economic Affairs Series ECON 125 EN This publication is available in EN (original) FR DE. At the end of this document you will find a full list of recent Economic Affairs Series Publications. PUBLISHER: European Parliament L-2929 Luxembourg AUTHORS: Ben Patterson and Dr. Alicia Martinez Serrano (University of Murcia) EDITOR: Ben Patterson Directorate General for Research Economic, Monetary and Budgetary Affairs Division Tel.: (00352)4300-24114 Fax: (00352)4300-27721 e-mail: [email protected] The opinions expressed in this working paper are those of the authors and do not necessarily reflect the position of the European Parliament. Reproduction and translation of this publications are authorised, except for commercial purposes, provided that the source is acknowledged and that the publisher is informed in advance and supplied with a copy. Manuscript completed in December 2000. Directorate-General for Research WORKING PAPER Tax co-ordination in the European Union Economic Affairs Series ECON 125 EN 12-2000 TAX CO-ORDINATION Preface This working document is an updated version of the study originally published in 1998 under the title “Tax Competition in the European Union”. This edition consists of three sections. Part I. The General Introduction covers the recent history of tax policy within the European Union, and examines the current situation in the fields of Corporate Taxation, the Taxation of Savings, the Taxation of Labour and Indirect Taxation (VAT and excise duties). Part II. Taxes on Labour, on Income from Capital and on Corporations in the European Union: a comparative analysis provides a detailed survey of how direct taxes – personal and corporate – are levied within the European Union. Part III. Competition or Co-operation? discusses the main issues in the current debate on the alternative approaches of competition and co-operation in the tax field. References to all sections are listed at the end. iii PE 300.524 TAX CO-ORDINATION iv PE 300.524 TAX CO-ORDINATION CONTENTS PREFACE ...........................................................................................................................................................III SUMMARY AND CONCLUSIONS ................................................................................................................ IX PART I: GENERAL INTRODUCTION .................................................................................................................... IX The Code of Conduct....................................................................................................................................ix Interest and royalty payments.......................................................................................................................ix The “withholding tax” proposal...................................................................................................................ix Indirect taxation ............................................................................................................................................x PART II: TAXES ON LABOUR, INCOME CAPITAL AND CORPORATIONS: A COMPARATIVE ANALYSIS................. X Taxes on labour.............................................................................................................................................x Taxes on income from capital......................................................................................................................xii Corporate taxes ...........................................................................................................................................xii PART III: COMPETITION OR CO-OPERATION? .................................................................................................. XIII SOME DEFINITIONS ....................................................................................................................................XVI PART I: GENERAL INTRODUCTION ............................................................................................................1 HISTORICAL BACKGROUND ................................................................................................................................1 Tax and the Single Market.............................................................................................................................1 The New Approach ........................................................................................................................................2 The "Monti Package" and the Code of Conduct............................................................................................3 CORPORATE TAXATION ......................................................................................................................................4 The Ruding Report.........................................................................................................................................5 The Code of Conduct.....................................................................................................................................9 The "Primarolo Group"...............................................................................................................................11 The taxation of interest and royalty payments,............................................................................................13 THE TAXATION OF PERSONAL SAVINGS .............................................................................................................14 General principles.......................................................................................................................................14 The proposed Directive ...............................................................................................................................15 The November Agreement ...........................................................................................................................17 THE OECD: “HARMFUL TAX PRACTICES” .......................................................................................................18 Reactions and Contrasts..............................................................................................................................19 TAXES ON EMPLOYMENT INCOME.....................................................................................................................21 General principles.......................................................................................................................................22 Frontier workers..........................................................................................................................................23 Co-operation and exchange of information.................................................................................................23 Social security .............................................................................................................................................24 Supplementary pensions ..............................................................................................................................25 Social issues ................................................................................................................................................25 Other issues .................................................................................................................................................26 INDIRECT TAXATION.........................................................................................................................................27 Value Added Tax .........................................................................................................................................27 Telecommunications and e-commerce.........................................................................................................28 The VAT system ...........................................................................................................................................29 Rates of VAT................................................................................................................................................30 Excise duties................................................................................................................................................31 Indirect tax fraud.........................................................................................................................................33 PART II: TAXES ON LABOUR, ON INCOME FROM CAPITAL AND ON CORPORATIONS IN THE EUROPEAN UNION: A COMPARATIVE ANALYSIS.............................................................35 FOREWORD .......................................................................................................................................................35 TAXES ON LABOUR ...........................................................................................................................................36 Main tax elements........................................................................................................................................36 Effective tax rates by family type and wage level ........................................................................................43 v PE 300.524 TAX CO-ORDINATION Employers' contributions.............................................................................................................................47